Fundamental changes in the music industry are paving the way for future monetization opportunities.
U.S. District Judge Jed Rakoff called it a “catfight between two rich companies” on November 1, when the controversial multibillion dollar lawsuit filed by Terra Firma Capital Ltd., and its chairman Guy Hands, against Citigroup Inc. (C) and its banker David Wormsley was finally brought to a conclusive end. Rejecting Hands’ claim that Wormsley had deceived him into overpaying for EMI’s acquisition, the jury in New York has thwarted Hands’ futile attempts in holding on to EMI. Now, Citigroup will have no problem in breaking apart the British music giant and selling it off in pieces, since it had initially provided over $4.8 billion in loans to finance the acquisition of EMI by Terra Firma.
Several analysts have said that the case has simply been Guy’s last attempt at getting his own hands out of a poor business deal. Recently, negotiations between Citigroup and Hands on restructuring EMI’s finances had been underway – a deal which will clearly be swept to the wayside now that the lawsuit has come to an end. With losses totaling more than U.S. $800 million in the year that ended March 2010, EMI had evidently not been performing nearly as well as its other music industry brothers such as Sony Music Entertainment (SNE) and Warner Music Group (WMG). With cost cuts instituted by Hands leading to the accelerated departure of EMI’s top talent, such as Queen, Paul McCartney, and the Rolling Stones, EMI continues to have a difficult time in achieving previous levels of profitability, especially when it remains particularly vulnerable to global trends that continue to leech revenues away from the music industry.
Music Digitalization and its Challenges
Although EMI may have been hit the hardest as of late, the other giants of the “big four” in the recorded music business are likely to face the same challenges in the wake of vast changes in the industry. Technological innovation has brought an insurmountable degree of change to the music business, change that presents both opportunities and threats to its future economic outlook. Although new opportunities have rapidly evolved alongside innovations of digital distribution channels, such ingenuity has not resulted in proportional market growth. The global music market has declined a staggering 30% from 2004 to 2009, despite digital sales having increased a total of 940%, accounting for more than a quarter of record companies’ revenues for the first time in history in 2009. Evidently, although digital sales of music have experienced unprecedented growth during the last decade, such growth has not offset the sharp decline in sales of physical formats. Imperative for the future growth of the music industry is the realization that music consumption will continue to ebb away from the physical world and into the digital realm, as seen by statistics provided by the International Federation of the Phonographic Industry (IFPI). Therefore, seeking monetization opportunities of digital music consumption will be fundamental for the survival of the music industry in the future.